SteelOrbis talked to Louis Redshaw, founder and CEO of Redshaw Advisors Ltd., regarding EU's safeguard policy and the effects of CBAM.
How do you evaluate the latest announcement from the EU regarding its safeguard policy?
The latest safeguard measures that the EU Commission proposed to protect EU steel production are designed to limit the impact of global overcapacity on EU producers and to increase traceability of imported steel. The measure is expected to have an inflationary impact on steel prices in the EU, thus a spillover effect on steel-intensive consumers. The plan’s “melt and pour” requirement is particularly relevant to any discussion of the EU Carbon Border Adjustment Mechanism (CBAM) since it enhances traceability. Traceability is at the heart of the EU CBAM because importers must now demonstrate imported steel’s associated carbon emissions impact. However, the safeguard policy, when combined with CBAM obligations, makes importer’s jobs significantly more administratively burdensome and risky.
Are these trade measures effective in ensuring a level playing field, or do they distort competition?
The EU's new steel safeguard measures are specifically designed to create a more level playing field by protecting domestic producers against unfair trade impacts caused by global overcapacity, particularly from subsidised or distorted markets like China. As such opinions on competition distortion will vary based on perspective, it is clearly anti-competitive to restrict imports, but it is also anti-competitive to subsidise and dump goods in another market. Importers will see the safeguards as unfairly increasing their costs relative to their competitors, while EU producers will benefit from a market that isn’t being pushed below economically viable levels due to subsidised foreign production, so they will see it as completely fair. How effective the trade measures will be will only become clear over time, but from an objective perspective the measures are likely more justified than not.
What do you think the main challenges of CBAM are and what effects do you anticipate on trade flows?
CBAM currently suffers from information gaps that prevent importers from quantifying and locking-in their costs. Despite EU CBAM financial liability starting in 2026, this is a problem today for those companies that are seeking to lock in prices for 2026 deliveries. Principal amongst the uncertainties is the delayed publication of CBAM benchmarks which prevents companies from calculating their exposure to CBAM certificate liabilities, thus their costs. This has caused companies to change their approach to markets, for example by stockpiling affected goods in advance of the CBAM obligation that starts on January 1. Other companies are leaving themselves wide-open to the financial risk and some are putting off transactions altogether until they can get clarity.
The second biggest challenge is CBAM certificate price risk. The EU won’t make CBAM certificates, valid for 2026 imports, available for sale until February 2027, which on the face of things would make it impossible for importers to risk-manage their costs. However, because CBAM certificate prices will be related to EU Allowance (EUA) prices companies can obtain a ‘dirty’ (i.e., imprecise) hedge by buying EUAs. With traders/importers surviving on thin margins, this may not be sufficient, so emerging risk-management products, such as the Virtual CBAM Certificate (VCC) have been launched to bridge that gap more accurately.
Given that CBAM introduces potentially substantial additional costs for less efficient producers, resource shuffling will occur, thus causing disruption to logistics at the producer’s end of the supply chain. As for trade flows, carbon-intensive products will be redirected to countries with no carbon tariffs and cleaner products will be largely re-directed to Europe. This effect will grow stronger over time as the CBAM phase-in makes carbon-intensive products less and less likely to arrive on European shores. Due to the phased-in nature of CBAM, it is difficult to predict exactly how much trade flows will change because that change will be gradual and the price of carbon in the EU can be very volatile. What is more certain is that demand from Europe will drop at least a little due to the higher costs of CBAM-covered goods in the EU.
Do you think current EU funding mechanisms are sufficient to support green transition in steel?
Under the Research Fund for Coal and Steel (RFCS), the steel sector is set to receive €100m for projects focused on breakthrough technologies, such as carbon capture, storage, and utilisation, process intensification, and CO2-neutral iron ore reduction. Additionally, the EU’s Clean Industrial Deal includes mobilisation of over €100 billion to support clean manufacturing broadly, including steel. The Innovation Fund, financed via sales of EU Allowances, is focused on first-of-a-kind technology deployment, and EU Allowance auction revenue can be put to work as state-aid on projects of any kind. So, there is, in theory, a lot of money available to support green steel, however it won’t all get spent on one sector.
A key consideration for the green steel transition is the cost of abating emissions in the steel sector, currently estimated at around €150 per tonne of carbon. The payback for green steel plants is unlikely until the carbon price (currently hovering around €80) approaches this figure. Current forecasts suggest that this threshold will be met in 2031. So, despite the available subsidies, we think that that transition will only happen in a meaningful way when a strong carbon price signal emerges, or costs of abatement fall.
How do you see the balance between environmental targets and global competitiveness?
Achieving emissions reductions relies on replacing blast furnaces with hydrogen- and electricity-based production. According to some analyses, roughly 20 percent of announced hydrogen projects (about 29 GW of capacity) across Europe have been stalled or cancelled, mainly because of economic viability challenges, funding shortages and uncertain demand for clean hydrogen. It is clear that decarbonisation is expensive and so, unless all other countries take climate change mitigation as seriously as Europe, global competitiveness will be severely distorted by playing-field levelling interventions by those governments seeking to address their carbon footprints.
EU CBAM is causing interesting developments in countries that are large exporters to Europe by pushing them to implement or strengthen their own carbon pricing mechanisms to maintain barrier-free market access to the EU. If implemented properly, these emerging carbon markets will naturally level the playing field in terms of carbon costs, reduce carbon leakage and de-risk green steel investments globally.